The Fourth Trade – Electronic Systems Contactors (ESCs)
by Keith E. Davis

Well, you just have returned home from IBS 2008 and your head is still spinning from all the information presented in countless seminars, committee meetings and on the show floor. Rather than having visions of framing lumber, cabinets, plumbing fixtures and appliances dancing in your head, you know that Home Technology was everywhere in Orlando: in The New American Home, in the nextGen home in the back parking lot, in the dedicated nextBuild sections on the show floor alone were multiple vendors presenting their wares and trying to convince you that you must make technology an integral part of your new homes.  

So maybe Home Technology has some legs. Maybe embracing home technology will differentiate your homes; not to mention creating a new revenue center. Maybe the NAHB is on to something with the Home Technology Alliance. Hmmm…

May I let you in on a little secret? YES…Home Technology is very real and very much in demand by your home buyers. Let’s talk about how to make home technology work for you.

Oh yes, another little secret for you.  Guess what? You don’t need to be the home technology expert! You are THE Builder who assembles a team of professional and qualified subcontractors who each take care of their respective trade in the right order to build a completed home. Its not rocket science, so please do not be overwhelmed by technology and all the fanfare that seems to surround it. Don’t worry about products, wire, vendors or even what type of technology you should offer. First and foremost focus your efforts on finding the professional and qualified subcontractor to make those decisions with and for you. That sub is called an Electronic Systems Contractor (ESC) and will soon be the fourth trade on your jobsite.

Yet just like there are many different types of builders building many different types of homes at varying price points, there are a wide range of ESCs. So it’s not like calling an electrician who is a member of your HBA and asking them for a quote. That’s a very mature trade and home technology is not fully developed yet. You may have to kiss a few frogs along the way to find a good and trustworthy ESC.

Let me provide a thumbnail sketch of the different types of ESCs you may encounter in your world. Take some time to review each and decide which type makes the best sense for the homes you build and your homebuyers. It will be time and effort well spent.

High-End ESC– A dealer working in the high-end home buyer custom market where every home and project is a one-time creation based upon the customer’s needs, wants and desires. This approach requires lots of sales, design and engineering skills to accomplish successfully and profitably.  Typically these dealers install the entire gamut of home technology including: dedicated home theaters, full automation and control systems, extensive lighting control, HVAC and energy management systems, large scale multi-room audio, structured wiring, in-depth security and home networking. Average price points to the homebuyer can easily exceed $100,000 and go well beyond depending upon the scope of the project and the homebuyer’s budget. If this is your marketplace, you MUST find and use a very well respected and reputable ESC or face a very unhappy customer. A word to the wise - you get what you pay for here.

Mid-Market ESCs – A dealer who works in the new home builder market with the emphasis on the Move-Up and Luxury categories of homes. There are two different avenues for this dealer to pursue depending upon the builder’s mindset regarding the home.

• Custom Homes – For the home buyer who has the builder’s permission to work one-on-one with home technology subcontractors to create their own unique home systems. This dealer is very much like the high end ESC and may even have the capabilities to work there too, but at this level they use a more packaged approach to selling and installing home technology that can be easily modified within pre-defined limits to suit the individual buyer’s tastes and needs. Home theater and whole house music lead as the types of systems provided, with security, structured wiring and home networking included too. Some of these buyers will opt in for a limited scope automation system and basic lighting control as well.  Average price points to the buyer can range from $25,000 to $75,000.
• Semi-Custom Homes – This dealer provides homebuyers a limited set of choices for home technology in keeping with the builder’s business model of streamlined processes and restricted offerings. They use a total “packaged approach” to sales and as a rule do not venture outside of their pre-designed realm of products and services. Typical installed systems are home theater/flat panel based media rooms, multi-room audio, home networking and at the higher end limited scope home automation. Security and structured wiring may be included, but more often than not these systems are installed by other builder provided subcontractors. Homebuyer price points start in the $10,000 range and can go up to $25-$30,000 mark.

Low-End – A dealer who works totally in the production oriented builder who uses the packaged approach to sales exclusively. Homebuyers in this category typically have a limited amount of available funds to install home technology, so the focus of this ESC is to sell home technology packages and have the price of the system included in the mortgage for the home. This ESC makes somewhat less margin per home than the more high-end ESCs, so they must make up that difference by producing a much greater volume of sales and work. Systems are usually limited to media rooms using a flat panel TV and basic surround sound systems plus multi-room audio using entry level electronics to accomplish the installation at aggressive price points.  Security is installed by a security contractor as a rule and if there is any structured wiring installed, that may be done by the electrical contractor. Homebuyer price points can range from $2,000 to $10,000 depending on the system installed and the price point of the home.

Electrical Contractors – Seen by some builders as the best choice for installing wiring only as they are fast, low cost and a known subcontractor. More and more electrical contractors are looking at the consumer electronics space and want to be in the marketplace, yet often lack the training, expertise, confidence and access to quality products in order to do so. Typically they will install structured wiring and entry level lighting control when asked to do so by the homebuyer, but usually do not have the capabilities to pursue more complex and costly systems due to factors mentioned above. But, electrical contractors are a required sub in every home and represent a very viable and available segment of the ESC community. When trained correctly and given access to quality products, the electrical contractor could be a major force to be reckoned with in the low to mid-market space.

Security Installers – Another ESC that has made inroads into the CE space in the last five years as they are also a well known subcontractor in the builder space. As the recurring monthly revenue model has been recently hurt by stiff competition, the thinking security dealer is seeking additional sales and profit opportunities in the well known to them builder space. Home technology is the next logical step for them and more and more security oriented distributors have stepped up their offerings of equipment for their customers to meet this new demand. As with the electrical contractor, the security dealer needs to be trained and taught new skills in order to successfully compete in this marketplace, but have an inside track to be successful doing so. After security, many of these dealers will sell flat panel based media rooms and multi-room audio to the builder’s customers. Possibly structured wiring would be offered and installed as well.

Big Box Retailer – This segment of the market has had an on-again/off-again relationship with the builder marketplace over the years and has tried with limited success to work with builders through many different programs - restraining their credibility to the builder and homebuyer. Everyone recognizes their names and find comfort in the fact that usually there is a store not too far away where any problems or issues can be taken care of, while the reality is that retailers are still struggling to find the right combination of products and services to meet builder expectations. And there have been some spectacular implosions within the retail community in recent years leaving the builder and customer holding the proverbial bag resulting in some very bad feelings and burned bridges. Best Buy continues their efforts with the Geek Squad and Circuit City with Firedog to penetrate the builder marketplace and the jury is still out on their ability to implement successfully. Offerings are typically restricted to flat panel TV based media rooms with surround sound and sometimes multi-room audio since the retailers are in the business of moving boxes of equipment in through the retail channel and are comfortable with the category. Home networking has become a staple for them as well as most home PC buyers are too scared of or incapable of setting up a simple wired or wireless home network.

Specialty Retailer – Often called a Hybrid Custom Installer, this ESC has a retail storefront and in the sales process, will often offer to install the products for the customer as well. Their primary market is the walk-in customer but some have partnered with builders to send the homebuyer to the showroom to select home technology systems much as they would go to the appliance store to select a refrigerator. Most of these companies are smaller and struggle with the cyclical nature of the builder market and chafe at the deadlines and needs of the builder for a profit margin as well. Their offerings can run the gamut as well depending upon the customer’s budget and the builder’s willingness to allow time for a custom installation. Some hybrid retailers have embraced the production home model and may set aside a room for builder offerings in the showroom with installation included.

IT Companies – More and more companies with an IT background are looking at the CE space and deciding to enter the marketplace. In the future, as multitudes of home electronics become network enabled, the need and demand for trained network administrators to build and manage the home network will grow rapidly within the home technology space. The IT community will seek out the training and skills necessary to understand the audio/video side of the business and will meld their skills into the ESC space more readily that A/V firms desiring to learn the IT side. And as the IT vendor becomes more like the CE dealer, they will more than likely enter the builder space as dealers and take on one of the three business models discussed above but with additional skills the home buyer will demand.

Lastly, when you talk to potential ESC’s, interview them like you would any other sub. Don’t be put off by all the jargon and techno-speak. In fact, if they cannot tell you in plain English what they can and cannot do, then maybe they are not the right ESC to begin with. Think about how they will interface with the ultimate check writer - your customer. And would you want them in your own home? Good questions to ask before signing on the bottom line with one.

Well there you are. Maybe more information than you wanted to know, but I do encourage you to spend the time to find the right ESC. Not only will your clients be happier, but you will sell more homes and make more money in the process so the effort will be worthwhile.

About Keith E. Davis: With over 25+ years in the electrical, security and home technology industry, Keith Davis is president of Residential Technologies, Inc., a firm dedicated to lighting control, renewable energy, specialty electrical systems and energy management and control. He is a North Carolina licensed electrical contractor whose tenure includes AVAD D2B, a/v/a tech, Audio Video Design, a CE Pro Top 50 Dealer and C & M Electric. Keith participates in the Home Technology Alliance and is an NAHB member.  Keith participates in the Home Technology Alliance as an NAHB member and can be contacted at kdavis@rtinc.biz or (704) 944-3125.

 

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